Request for Quote (RFQ) platform

Corporate bonds in India trade mainly over the counter. Two institutions negotiate by phone or chat, agree a price, and then report the trade. Nobody else sees the negotiation; they see only the result.

The Request for Quote (RFQ) platform moves the negotiation itself onto a screen. The exchanges launched it in early 2020 for execution and settlement of trades in debt securities. A participant can seek a quote or respond to a quote, and the platform keeps an audit trail of all the interactions — quoted yield, mutually agreed price, deal terms.

The workbook's summary of the effect: it brought pre-trade transparency to transactions in eligible debt securities, letting participants negotiate various terms through a screen-based system.

The market it sits in. The secondary corporate bond market is mainly institutional and mainly negotiated. Every corporate bond trade, OTC or on exchange, must be reported within 15 minutes of execution; settlement takes place from T+0 to T+2, bilaterally on DvP-I through the clearing corporation for reported OTC trades.

How SEBI has built out the RFQ platform:

Similar mandates apply to mutual funds, AIFs and PMS. For yield-to-price computation on RFQ, cash flow dates are not adjusted for day count convention — they follow the due dates in the cash flow schedule.

The workbook also mentions that derivatives exchanges abroad use RFQ and Exchange-for-Physical facilities to offer customised contracts — evidence that the line between OTC and exchange markets is fading.

Illustrative participants and trade values.

A broker's monthly obligation. In June a stock broker's proprietary desk does Rs 400 crore of secondary market corporate bond trades by value.

Minimum via RFQ = 25% × Rs 400 crore = Rs 100 crore

If only Rs 80 crore went through RFQ, the desk has fallen Rs 20 crore short of the mandate for that month.

An FPI's quarterly obligation. An FPI does Rs 2,000 crore of secondary corporate bond trades in the April–June quarter.

Minimum via RFQ = 10% × Rs 2,000 crore = Rs 200 crore

One trade, end to end. The FPI's custodian-side dealer posts a one-to-many request on the RFQ platform to sell Rs 50 crore of a AAA bond. Three dealers respond with quotes. The FPI accepts one at an agreed price. The platform records the quoted yields, the agreed price and the deal terms, and the trade is settled through the clearing corporation — funds can move by RTGS or another RBI-authorised mechanism.

Contrast the same trade done by telephone: agreed privately, reported within 15 minutes, visible to the market only after the fact. The trade is the same; what the market can see before it happens is not.

Chapter 1 (Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets) covers the RFQ platform in section 1.14.2 on the secondary market for corporate bonds, with the full list of SEBI circulars, the 25 percent and 10 percent mandates, and the link to Online Bond Platform Providers. Chapter 2 (Interest Rate Derivatives) mentions RFQ in its comparison of OTC and exchange markets. Expect questions on the mandate percentages and who they apply to, the launch year, and the 15-minute reporting rule.

• Stock brokers: at least 25% of proprietary trades, monthly. FPIs: at least 10%, quarterly. Percentages and periods are both examinable.
• The broker mandate applies from 1 April 2024.
• RFQ was launched by exchanges in early 2020.
• Every corporate bond trade must be reported within 15 minutes, whether done OTC or on an exchange.
• Orders on Online Bond Platforms must be routed through RFQ and settled through clearing corporations.
• The private placement face value was cut from Rs 10 lakh to Rs 1 lakh, not to Rs 10,000.
• Cash flow dates on RFQ are not adjusted for day count convention for yield-to-price computation.